Microsoft beat out the competition to nab a 23,000-user cloud email deal with the City of San Francisco.

San Francisco has signed a contract to port 23,000 municipal employees’ email to Microsoft’s cloud.

The transition to Microsoft Exchange Online will continue over the next year, and involve employees from around 60 departments and agencies. City executives on a May 18 conference call suggested that the initiative would cost $1.2 million per year, which breaks down to $6 per month per user.

San Francisco had apparently considered Lotus Notes and Google as possible email providers, but ultimately went with Microsoft because it provided interoperability with other software, including Windows Azure applications and Office products such as Word and PowerPoint. The technology underlying all the solutions apparently underwent a multiyear evaluation by the city’s IT experts before a decision was made.

“We weren’t making the decision just about email,” Jon Walton, CIO of the City and County of San Francisco, told media and analysts during the call.

Last week, customers of Microsoft’s cloud-based BPOS service found themselves cut off from email after malformed email traffic sparked a series of message backlogs. Some customers experienced message-delivery delays of six to nine hours on May 10, followed by another delay May 12. For some analysts and pundits, the outage heated those long-simmering questions about the reliability of the cloud for businesses and governments that deal with time-sensitive tasks; however, San Francisco officials claim the incident didn’t dampen their confidence.

“Email outages, unfortunately, are something that’s happened to us before,” Walton said, adding that last week’s outage “only impacted us for about four hours.”

Microsoft claimed in a May 12 posting on the Microsoft Online Services Team Blog that it had initiated some corrective measures in the wake of the BPOS outage, including steps to streamline its communications with users.

Microsoft is “all in” with regard to cloud services. Indeed, CEO Steve Ballmer and other executives have spent much of the past year taking every opportunity to tout the company’s subscription-based platforms as the wave of the future. Office 365, Windows Azure and other platforms represent Microsoft’s attempts to expand its revenue base beyond traditional, desktop-bound software such as Windows and Office.